Macquarie Journal of Business Law
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“Internationally, global capital markets would ideally have global regulatory norms – or at least more co-operation between national authorities.”[1]
Much has been written in recent years about the international financial system. Financial services are highly internationalised, perhaps more than most industries. This may be more in spite of the international system than because of it.
While today’s financial markets are globally interconnected, for the most part they are regulated and supervised at a national level.[2] The international financial system “is wholly different from that which the Bretton Woods institutions were designed to support”.[3] In good times, this is not a great concern for most participants. However, in times of financial stress, these weaknesses come to the fore.[4] It takes a serious crisis for participants to seriously consider wholesale reform to the system. Let us hope that the current crisis results in some practical improvements and that the passion for reform does not wane before the changes are made. Fundamental reform at the international level, involving significant decisions about granting power to an international body, is only likely during or soon after a major crisis.
Accordingly to The Economist, there are few new financial reform ideas under the sun. Further, to be “taken seriously, such ideas must pass two tests. They must be an improvement on the status quo, and they must stand a chance of being implemented. Most radical blueprints fail on both counts.”[5] This paper will discuss the international financial system and its recent difficulties, current international regulatory measures, how a global regulator might be established and some of the issues involved.
Financial services have been a global activity since ancient times. International finance was largely trade-based in those times. In the last 400 years, international financial services have expanded to include investment, lending and insurance.[6]
Towards the end of WWII, the allies realised that a new financial system would be required in the post-war period. Two of the then most respected economists, White and Keynes, met together as part of a broader conference on the post-war financial system. This resulted in the creation of the International Monetary Fund and World Bank, and recommended an International Trade Organisation.[7]
In the last two decades, the internationalisation of the financial system has grown exponentially.[8] Since the late 1970s, most countries have floated their currency and removed their capital controls, resulting in much more open financial sectors and allowing for massive international capital flows.[9]
The financial services industry is a global phenomenon.[10] Difficulties in one country affect financial markets on the other side of the globe. “Contagion-related spillovers from national, regional and global crises are the downside of financial globalization.”[11] Each country’s exchange rates, interest rates and capital flows are beyond the complete control of their national government, which poses some interesting political and sovereignty issues.[12] “Just as no man is an island, no investor today is only a domestic investor. … The internationalization of the world’s securities markets is a reality.”[13] Countries do not have the freedom to choose whether the international financial system will affect them; they do, however, have some choices about the terms on which they participate in the global system.
There are many benefits from the globalisation of the financial sector. For example, it provides access to deeper and more liquid capital markets for businesses and investors, and a resulting reduction in the cost of capital.[14] Empirical research confirms “that capital market integration is associated with a lower cost of equity capital”.[15]
Economic activity is by its nature cyclical. Markets ‘overshoot’, resulting in periods of high growth, increasing asset and commodity prices and falling unemployment; followed by periods of low growth, decreasing asset and commodity prices and increasing unemployment.[16]
The movement of funds from one investment opportunity to another, into and out of countries, can have a highly destabilising effect on asset and commodity prices, exchange rates and interest rates (and therefore production, employment and living standards).[17] In recent years, international finance appears to have exacerbated international financial instability, particularly for emerging markets.[18]
Recent years have seen a number of significant crises in the international financial system. These include the Asian financial crisis in the late 1990s, defaults by Brazil and Russia in 1999, and the collapse of hedge fund Long-Term Capital Management also in 1999.[19] In the last twelve months the international financial system has suffered from a ‘credit crunch’, as lending and liquidity has contracted worldwide following problems in the US sub-prime market. The issue has spread to most fields of lending, including the bond market and inter-bank lending.[20]
“Financial crises occur with monotonous regularity, and are followed just as regularly by demands for a new architecture.”[21] In the last 60 years “there have been numerous calls for new institutions, new rules or a ‘Bretton Woods II’”.[22] The calls rise during and at the end of each crisis, but appetites for change diminish when things return to normal.[23] This does not take away from the fact that the international financial system is unstable and practical steps can be taken to improve it.
The international financial system does not have some of the protections built into most national systems. Almost all nations have a set of rules covering the financial sector, bankruptcy regime, lender of last resort and financial regulator. These are all missing to some extent in the international system.[24] “In the event of a rapid development of financial markets, the same regulatory tasks required in national markets will be needed internationally.”[25] A sovereign bankruptcy regime and global lender of last resort have been discussed elsewhere, but are beyond the scope of this paper.[26]
Most countries have a set of rules governing participation in the financial system.[27] These cover who may offer financial services, what disclosures must be made to investors, how firms must be run and an independent dispute resolution system.
The rules governing the international financial system are currently incomplete. A number of international standards have been agreed between regulators that guide their general approach and encourage consistency.[28] Further, regional groupings such as the EU have established detailed rules governing many aspects of financial services.
Most countries have one or more specialist government bodies supervising the financial sector. They administer sector-specific rules and oversee the institutions, particularly those with systemically important holdings of deposits and other funds.[29] These prudential regulators require institutions to maintain a capital buffer, and closely monitor their financial safety and soundness. This is in recognition of the political importance of minimising failure in these systemically important institutions and maximising the stability of the banking sector.[30]
A broader range of financial institutions are supervised through a less intensive licensing and disclosure regime in most countries. This includes a fundraising regime covering issues of securities to the public, and supervision of financial markets (eg stock exchanges) and professional financial services firms (eg stockbrokers). This is often known as a conduct of business or market regulation regime.
Currently there is no international prudential or market regulator. There are a number of standard setters at this level, and some coordinated action at least in regional groupings.[31]
A number of international governing bodies are involved in the international financial system, but none yet resemble an international regulator.[32] This section describes the status quo for the international regulatory organisations.
The Bretton Woods institutions have evolved as the international financial system has developed over the last 60 years.[33] For example, the IMF has moved from exchange rate monitor, to adviser to emerging markets and “providing more money more quickly to countries hit by capital-market crises”.[34]
Central banks have taken on a regulatory role in many jurisdictions, so it was not surprising that “BIS should drift into regulatory activities”.[35] It serves “a kind of regulatory/supervisory function by providing a forum for the world’s central banks in their efforts to effectuate, first, the goals of Bretton Woods and later in their bank management functions”.[36]
“BIS, CBS and various related committees (such as the Joint Forum on Financial Conglomerates) … form a kind of amorphous international conglomerate of bank regulators. When BIS and/or the other groups are mentioned as a potential world financial authority, it is really this body that is being referenced.”[37]
A number of important standard-setting and coordination committees are hosted by BIS. They include the Basel Committee on Banking Supervision and the Committee on the Global Financial System. BIS also provides a secretariat function for the Financial Stability Forum and the International Association of Insurance Supervisors. These committees are a combination of standard-setting and coordination committees; two forms of global regulation referred to below.
The Committee is a forum for regular cooperation on banking supervisory matters. It is heavily involved in standard setting and is best known for international standards on capital adequacy (the Basel Accord), the Core Principles for Effective Banking Supervision and the Principles for the supervision of banks' foreign establishments (Concordat).[38]
The first Basel Accord was introduced in 1988 to strengthen the capital position of internationally active banks following the Herstatt Bank collapse, which revealed “that banks were woefully under-capitalised … in America, Europe and Japan”.[39] As a result, the US regulators in particular wanted to ensure their banks substantially improved their capital position, but in a way that did not unduly disadvantage them vis-à-vis their major competitors. The Accord required banks in member countries to hold adequate capital (based on fairly simplistic formulae).[40]
The Accord has been recently revised and is now a more comprehensive minimum standard for capital adequacy. Basel II aligns regulatory capital requirements more closely to the broad range of risks that banks face.[41] It also pays greater attention to market transparency and cooperation between national regulators.[42]
Even thought the Committee has only 12 member countries, the Accord has been adopted by over 100 countries, including many emerging markets. It has been described as one of the most successful regulatory harmonisation projects ever, at least in the commercial field.[43] There is also talk of “an insurance Basel before long”, in recognition of the success of the Basel Accord.[44]
The Committee has also focussed on “broad supervisory standards and guidelines”.[45] It developed best practice supervisory rules that national regulators could implement in a locally appropriate way. The Concordat established the widely accepted home-host model,[46] providing that “[h]ost authorities are responsible for the operation of foreign banking establishments within their territories as individual institutions, while parent authorities are responsible for them as part of larger banking groups”. [47]
The Forum was formed in April 1999 to promote “international financial stability through information exchange and international co-operation in financial supervision and surveillance”.[48] It is made up of national authorities (central banks, prudential regulators, government representatives) international organisations (eg IMF) and international regulatory institutions (eg Basel Committee).[49] Its role is to “co-ordinate the efforts of these various bodies in order to promote international financial stability, improve the functioning of markets, and reduce systemic risk”.[50]
The International Organization of Securities Commissions (IOSCO) is the key “international standard setter for securities markets” and its members together regulate more than 90% of the world's securities markets. Its primary standard, “Objectives and Principles of Securities Regulation”, covers responsibilities of regulators (including effective enforcement and cooperation) and minimum standards for issuers, collective investment schemes, market intermediaries and secondary markets.
IOSCO provides a system of assessment of member state adoption of these principles (the “Principles Assessment Methodology”) and has also adopted a multilateral memorandum of understanding to facilitate cross-border enforcement and exchange of information amongst regulators.[51] Further, IOSCO provides comprehensive technical assistance to its members, in particular those that regulate emerging markets.
There have been calls for Basel-style international minimum standards for securities firms. “For firms operating in the securities business, there are no internationally agreed minimum capital standards, although most national regulators impose rules of their own”.[52] Efforts to negotiate standards along the lines of the Basel Accord through IOSCO have not been successful yet.[53]
Siew argues that momentum is building for harmonised securities regulation internationally, referring to IOSCO’s:
“core set of non-financial statement disclosure requirements known as the International Disclosure Standards (IDS), which would allow issuers to rely on a single disclosure document as an ‘international passport’ to capital raising and listing in more than one jurisdiction at a time. The IDS was in turn to be implemented by the membership through domestic legislation, and it has garnered support from some key national regulators, including the US SEC which has adopted it in relation to foreign issuers as part of US federal securities laws.”[54]
The IMF ‘oversees’ the international monetary system and ‘monitors’ the economic policies of its 185 member countries.[55] In this surveillance role, IMF “provides an expert assessment of economic and financial developments” and “advises on risks to stability and growth and if policy adjustments are warranted”.[56] Its key surveillance program in this context, the Financial Sector Assessment Program,
“aims to increase the effectiveness of efforts to promote the soundness of financial systems in member countries. Supported by experts from a range of national agencies and standard-setting bodies, work under the program seeks to identify the strengths and vulnerabilities of a country's financial system; to determine how key sources of risk are being managed; to ascertain the sector's developmental and technical assistance needs; and to help prioritize policy responses. Detailed assessments of observance of relevant financial sector standards and codes … are a key component of the FSAP.” [57]
The IMF is a direct creation of national governments, rather than national regulators.
The US SEC is already the “de facto global regulator” for some areas of fundraising, such as the global oil industry.[58] The US is by far the largest capital market, giving it huge market power and the ability to impose its own unique regulatory requirements.[59] The SEC is reported to have said “[f]oreign issuers should understand that the provision of information is the only requirement that must be fulfilled to trade here. Our market is open to all; information is the passport.”[60]
Attempts by the US SEC to “set itself up as a global regulator” are resisted overseas, particularly in other highly developed markets such as London.[61] For “all the huffing from national regulators, however, international companies are likely to accept the [US] rules with good grace. It is, after all, their own choice to raise money in American capital markets.”[62]
There are a number of possible types and forms of international regulation. They vary in terms of the level of intervention in national affairs and impact on national sovereignty.
At the simplest level are international standard-setting bodies. These have been established in many fields, including post, telecommunications, airlines, shipping, international payments and meteorology. National regulators often group together with their foreign peers to discuss standards, swap knowledge and otherwise cooperate (a process known as ‘neofunctionalism’).[63]
International standards are less likely to offend national sovereignty, and have been developed for many financial services. Some believe they provide the best balance between sovereignty and global regulation. The downside is that “[i]nternationally agreed standards are often too vague to mean much. … Even the most specific standards can be evaded in spirit, if not in letter. To be effective, standards must be closely aligned with incentives.”[64]
Basic rules have been set dealing with interactions between regulators (eg memoranda of understanding about cooperation, information sharing and joint activities).[65] Attempts have also been made to harmonise rules on topics of shared interest, but with mixed success. The rules governing (for example) issuing of securities to the public are generally set at a national level. However, international standard-setting for bank capital requirements has been very successful.
Functional cooperation usually involves some agreed standards. For example, international telecommunications is only possible with agreement about interconnection methods and phone number protocols.
At the next level is international coordination of activities. As discussed above, regulators coordinate their work through organisations such as IOSCO and BIS. This is in recognition that many transactions are international and national regulators must necessarily cooperate to achieve their national mandates.[66]
Increasingly national regulators are formalising these coordination arrangements. For example, ‘colleges’ have been formed amongst regulators dealing with internationally active financial institutions. These are working groups comprising regulators from the jurisdictions in which the financial institution operates.[67] “The FSA, for example, is able to regulate only Citigroup's British activities, but it will have a much better chance of doing it well if it knows enough about the health of the firm worldwide.”[68] Going beyond these ad hoc groups, regulators have begun to develop agreed coordination approaches on a forward-looking basis. The key example is the home-host model under the Basel Concordat and implemented in the EU.[69]
The challenge is how to ensure consistent and robust implementation of international standards by national regulators. A combination of surveillance (by an international regulator or by peer regulators) and incentives is needed.[70] For example, the IMF and World Bank sometimes tie funding to a country to “its standards of disclosure and the safety of its financial sector”.[71] An even more effective incentive is mutual recognition and market access. The US Federal Reserve will not let a bank open a branch in the US unless its home regulatory regime is sufficiently robust.[72] “Similarly, British financial regulators carry out more frequent and detailed inspections of the British subsidiaries of banks from countries whose supervisory standards are considered lax.”[73] This creates incentives for domestic regulators (and their governments) to ensure robust domestic regulation (otherwise their internationally active firms cannot trade freely overseas).[74]
A third form of global regulator is a body supervising and coordinating national regulators.[75] This is a combination of the above concepts – it presupposes international standards and agreed cooperative approaches. A form of federal approach, it involves a central body supervising and possibly directing national regulators. Examples here include the US Federal Reserve banking system, the EU’s coordination committees for banking and securities,[76] and the Basle Accord Implementation Group.[77] Despite its informal approach, the Basle Committee has already developed methods of ensuring its members apply the regulations it promulgates.[78]
Siew argues that it is of “utmost importance that an institutional mechanism” be established to not only produce unified standards, but to “(i) monitor the implementation and enforcement of those standards by national regulators, (ii) resolve disputes as to interpretation, and (iii) make changes and adapt the regulations to changing economic and market conditions”.[79] This ‘weak-form’ global regulator might be labelled a “Global Coordinator”;[80] this paper argues that this is the most achievable and, on a cost/benefit basis, the preferable form of international regulator at this stage.
A fourth form of global regulator, the most complex and involved, would be an international body that directly regulates participants in the financial system (eg an international-level prudential or market regulator). The benefits of such a global regulator (a ‘strong-form’ global regulator), which would have “all regulatory and supervisory powers concentrated at the world level, are increasingly perceived”.[81] We do not have an example of such a regulator as yet.
What form would an international financial regulator take? This of course is affected by its role and mandate.[82]
The Basel Committee, ISOCO, CESR, IMF and ECB are described as international regulatory organisations today by some commentators.[83] However, they each follow quite different models. The Basel Committee, IOSCO and IMF were introduced above.
The Committee of European Securities Regulators (CESR) is a regional committee of regulators, created by the European central government bureaucracy.[84] CESR’s role is to improve co-ordination among securities regulators, ensure consistent implementation, supervision and enforcement of EU securities law, and advise the EU Commission on law reform issues.[85] It has its own secretariat and formally reports to the European Commission. Some have argued that CESR may lead to an “EU-wide SEC”. At this stage, the EU member states do not appear to be ready for an EU-level financial regulator.[86]
The European Central Bank (ECB) follows a federal central banking model, similar to the US Federal Reserve System.[87] Since 1 January 1999 the ECB has been responsible for conducting monetary policy for the euro area. The ECB has separate legal personality under public international law. The European System of Central Banks (ESCB) comprises the ECB and the central banks of all EU Member States.[88] This federal model was chosen instead of a single EU central bank for a number of reasons. The ECSB builds on the experience of the national central banks, including their “institutional set-up, infrastructure, expertise and excellent operational capabilities”.[89] Further, it gives financial institutions a local point of presence, rather than having to refer to a Frankfurt-based organisation for day-to-day issues.[90] The rationale for a federal central banking system in the US is presumably similar.
An international regulator offers a number of advantages over the status quo. A global regulator, even in its mildest form, enables greater harmonisation.[91] The many and varied existing rules increase overall compliance costs.[92] While these are borne predominantly by internationally active firms, it affects most countries. Divergent rules increase the cost of offering services internationally, thus decreasing cross-border activity and reducing the range of services available in each country. Complying with a new set of rules decreases the attractiveness of offering services in a new country, reducing the total number of firms that will offer services into each country. These increased compliance costs and reduced economies of scale are a loss of welfare shared by all countries.[93] A uniform set of disclosure rules, for example, should lower the cost of capital to firms generally.[94]
A global regulator minimises the risk of a ‘race to the bottom’. It is well documented that regulators tend to reduce their requirements to attract global firms into a local market.[95] Many commentators fear a ‘race to the bottom’ with all jurisdictions offering lower and lower levels of regulation to entice internationally active firms to operate there. A global regulator would provide a strong bulwark against such tendencies. This benefits all, as a race to the bottom is likely to result in sub-optimal regulatory settings.[96]
A lack of consistent and robust regulation is generally accepted as one of the causes of the current financial instability.[97] A global regulator, however imperfect, is reasonably likely to result in a better regulated international financial system and lower levels of volatility.[98] It should “maximize financial stability between the developed and the emerging markets in such a way as to maximize world productivity”.[99] This will help protect those countries most vulnerable to financial instability (ie emerging markets).[100]
Global firms need a global regulator; much like national firms need a national regulator.[101] As “financial businesses are becoming increasingly interrelated and cross-border, their regulation and supervision should also be carried out on a unified and global basis”.[102] The Economist pointedly asked:
“Who regulates Citigroup, the world's largest and most diverse financial institution? With its operations in over 100 countries, selling just about every financial product that has ever been invented, probably every financial regulator in the world feels that Citi is, to some degree, his problem. … in a sense nobody truly regulates Citi: it is a global firm in a world of national and sometimes sectoral watchdogs. The same is true of AIG, General Electric Capital, UBS, Deutsche Bank and many more.”[103]
The need for a single “international bank regulator is increasingly acknowledged”.[104]
One basic issue is how to ensure that a global regulator is politically accountable. National regulators are accountable to a responsible minister, government department or parliament. This is an important measure in ensuring that the regulator serves the public interest, and its decisions are subject to adequate checks and balances.[105]
The normal way to create accountability is to ensure that an agency is subject to judicial oversight, that its senior management are appointed and its budget is set through the political system, and that it is accountable to an elected government. Some of these are not possible at this stage for an international regulator, but others are. For example, there is no reason in principle why its decisions cannot be subject to independent judicial review.
Another possible measure is to adopt a federal model, possibly with a membership-based governing body. The international regulator could be governed by an assembly of national finance ministers or regulators. This could provide the international regulator will an accountability mechanism, at least at a policy level. Obviously, each national regulator would have to be subject to the federal regulator in relation to its local affairs. But together with other national regulators it could influence the overall policy of the federal regulator.
A federal-style international regulator is most likely to develop at a regional level to start with. For example, a federal financial services regulator for the European Union has been under discussion for many years. In that context there is an appropriate range of accountability measures, including European-level responsible ‘ministers’, courts and a parliament.
Competitive forces help keep a regulator accountable, dynamic and flexible.[106] A variety of regimes allows countries to compete for financial firms and investors, thus encouraging creative competition for the regime that produces the best business and investor outcomes at the lowest cost. Full harmonisation and a single regulator would necessarily reduce the potential for regulatory competition to improve the rules.[107] On one view, without this “rivalry from market regulators elsewhere, [a global regulator] would also be likely to turn out a bad steward of the markets.”[108]
The competition theory has been strongly criticised, however. One criticism, the ‘race to the bottom’ argument, has been discussed earlier. Another is that the assumptions underlying the competition theory are unlikely to ever be satisfied in practice.[109]
A related risk for a global regulator is that the regime it administers will tend towards a ‘mediocre’ lowest-common-denominator model. That is, to achieve global agreement on standards and processes, the necessary compromises might lead to a poor regime.[110]
The most difficult issue is not so much whether an international regulator would be beneficial, but whether in the practical realties of world politics national governments are likely to subscribe to it.[111] The key issue is incentives. Do the benefits of subscribing to an international regulatory system exceed the costs? What incentives would be needed to encourage national governments to subscribe to an international regulatory system?
Agreement on international financial regulatory reform is possible, but the low prospect of unanimous agreement to transfer power to an international organisation suggests that such a “change would have to be reached gradually and over the course of time”.[112] This paper argues that the journey towards a global regulator is likely to be slow and through incremental steps.
Designing the ideal financial system involves three competing goals – “continuing national sovereignty; financial markets that are regulated, supervised and cushioned; and the benefits of global capital markets”.[113] These goals form the “‘impossible trinity’ that underlies the instability of today’s global architecture”.[114] According to The Economist, any
“coherent reform proposal must favour two parts of the trinity at the expense of the third. … Those who wish to maintain sovereignty and yet allow capital markets to integrate must accept an entirely free market at the global level. Those who want capital-market integration and global regulation must forfeit national sovereignty.”[115]
Most politicians will baulk at trading-off any one of the three completely – hence, the most likely and achievable plan is one where the three are achieved in part, but none are abandoned completely.
At its simplest, sovereignty is the ability of a body politic to independently determine its own laws and policies. Sovereignty is what “endows a government with the power to regulate the affairs of a well-defined territory and its resident population without interferences from organisations or individuals external to the jurisdiction”.[116]
Any form of regional or global regulator involves a transfer of sovereignty to some extent. For example, EU Member States transferred some of their domestic sovereignty to the EU as part of Economic and Monetary Union.[117] However, as the ‘owners’ of the EU, the citizens of the EU member states arguably merely transferred sovereignty from one body politic of which they are part to another. This transfer of sovereignty was not a loss of absolute sovereignty, but a change of relative sovereignty between the member states and the central EU institutions.[118] “Through this approach, a country relinquishes national sovereignty over money in return for a share in the supranational sovereignty.”[119] The loss of sovereignty by member states in the progress towards international regulation can be balanced by the gains to their citizens in terms of the greater international economic power of the regional block, and greater economic performance and stability.
The key issue is whether the ‘cost’ of this transfer of sovereignty is made up for by the benefits to the government and citizens concerned. Traditionally, nations such as the US have been reluctant to give up sovereignty to international institutions, in part on the basis that the expected benefits do not exceed the perceived costs.[120]
Is signing up to a given proposal for international regulation likely to be in the national interest of a given country? This obviously depends both on the proposal and on the country in question. The interests of a large developed country (eg the US) may be different to the interests of a small developing country.[121]
Traditional international relations theory assumes that nation states act in the international realm according to their perceived interests – of the country, ruling class, and general public.[122] Some types of international cooperation easily meet the national interest test: as discussed earlier, functional cooperation in areas such as post and telecommunications is well-accepted. In other areas, whether a given proposal is attractive depends in part on the likely behaviour of other states.
Good regulation, or at least the perception of good regulation, can reduce the cost of capital for firms. Demonstrating that a country has adopted robust regulatory standards can itself be difficult and costly. One way to achieve this is to adopt internationally prominent and independently verifiable standards of good regulation. This allows a country to reliably signal that it has robust regulation in place.[123]
Some international standards and rules are clearly beneficial as and of themselves, regardless of how many other countries also subscribe. For example, numerous academic studies have shown that robust disclosure and fundraising standards lower the cost of capital for domestic issuers.[124] Regardless of whether neighbouring countries also subscribe to a robust set of rules, any given country has a strong incentive to subscribe.
This section suggests a possible model for regulation of the international financial system. It looks at the issue in a couple of ways – the types of rules and functions needed, types of body that could be used and their connection with national systems.
A global regulator clearly needs a set of rules to enforce. While in theory they could enforce a myriad of local rules, the most effective approach would be for them to supervise some international standards. While the rules need not be exhaustive, they need to cover basic authorisation, operational and conduct issues for the regulated institutions and markets. For example, most
“commentators agree that the ideal response to the globalisation of the securities markets would be the development of international standards for accounting, auditing and disclosure by issuers. Under such a model, a common prospectus would be developed that would set forth agreed-upon international standards for all world-class companies. Similarly, if there were international standards concerning capital adequacy, customer protection, principles of business conduct and insurance of customer accounts, financial institutions could freely establish worldwide, and be governed by such international regulations.”[125]
At this stage, the starting rules would probably be a combination of the Basel banking rules (the Accord and Concordat), and a detailed and robust set of securities rules (building on the IOSCO principles and multilateral MOU).[126] Fontecchio also suggests that the Global Agreement on Trade in Services (GATS) might be an avenue to achieve greater harmonisation.[127]
A suggested model for international regulation in the short term is:
• two separate agencies – a prudential regulator and a market regulator (ie a ‘twin peaks’ model);[128]
• carrying on the functions of standard setting, and coordinating and supervising the national regulators (ie a ‘Global Coordinator’); and
• (to start with) regionally-based on federal models.[129]
Another key issue in the literature is adoption – how do you get the countries of the world to subscribe to such a wholesale change to the regulation of the financial system? While most commentators agree that the architecture of the financial system needs to be overhauled, there is no consensus about what changes should be made and great scepticism about how to get nations to sign-up.
Many, including The Economist, argue that the majority of nations have to join to make the reforms viable.[130] This ‘big bang’ approach is necessarily difficult. It assumes that a critical mass is needed before any of these changes would be viable. Is this a classic gridlock situation like many international problems – is it worth subscribing only if you are confident most other participants will subscribe? Like international climate change, critics argue there is not much point signing up to a reformed international system unless most other (or at least the major) players also subscribe. This creates massive inertia and leaves many concluding that reform is unlikely.[131]
This paper argues a contrasting position: incremental change is possible and should be pursued. While for many international issues broad collective action is necessary, some aspects of international financial regulation can be advanced incrementally. The nature of the regulatory problems and the incentives mean that small groups of countries can advance harmonisation and co-regulation measures on a step-by-step basis.[132] Each country benefits from the co-regulation, so do not have to wait for a large number of subscribers. (Obviously a small number is needed to share the set-up costs.) And each additional subscriber increases the benefits to existing subscribers and increases the overall attractiveness of the system to newcomers – thereby increasing the potential growth and adoption of the system.
For example, although the Basel Accord has no legal force (sometimes called ‘soft law’), domestic regulators and banks cannot in practice ignore the Accord (even in non-member countries). Ignoring the Accord risks
“being regarded by major international banks and their financial authorities, including the BIS itself, as ‘unattractive’ parties with whom to do business. And they know that in this global economy, they can not afford to develop their activities in isolation. Therefore, BIS’s recommendations are regularly adopted not only by the central banks which are members of the Bank, but also, interestingly, in almost all non-member central banks.”[133]
This is true for wealthy western countries as well as developing countries.[134] It is also true for other standards, such as the anti-money laundering standards.[135]
The Basel Accord was based at its core on a compromise position between the UK and US. This was enough to motivate the G10 + 2 to join.[136] And since then the vast majority of countries have adopted the Basel Accord. There was no need for most countries to subscribe before the Accord was viable. The Accord was attractive of itself – the incentive set encouraged nation-states to subscribe. “These rules became a global standard not because they were issued by CBS’s initiative, but because an internationally accepted standard was needed.”[137] Countries adopted them because they were inherently sound (and allow domestic regulators to demonstrate robust regulation to an international audience). The Chinese banking regulator reportedly said they are planning to draft regulatory rules and operational guidelines in line with the requirements of the Basle Accord as they “have long been studying ways to improve the existing capital supervision system”.[138] As Felsenfeld and Bilali explain, “when a country accepts a CBS opinion, it is not surrendering its sovereignty; it is exercising it”.[139]
Why was this so? Sound prudential regulation is rewarding for the domestic regulator and government – politically and economically. National regulators have a strong incentive to maintain a sound prudential regime. This tends to lower the risk that its citizens will experience economic and financial loss from banking problems. Pattison explains, “self-interest and other factors explain why more than 100 countries have agreed to accept these [Basel] standards”.[140]
It also lowers the cost of capital for domestic businesses. A well regulated banking sector is more likely to earn the confidence of foreign lenders, who will (all other things being equal) be willing to lend to domestic banks at a lower interest rate which can be on-lent to domestic businesses at a competitive rate, thus encouraging local economic activity. There is a strong positive incentive to ensure local banks are soundly regulated.[141]
Regulation based on an international standard increases this effect. For the international lender, a major issue is how easily they can verify that banks in a given country are well regulated. This is partly a perception issue, as perfect information is unlikely to be available. The cost of assessing a bank’s soundness is reduced if you know that bank is regulated according to the international standard. This means the cost of lending to that bank is lower; therefore the interest rate offered to that bank is likely to be lower. This is a further incentive to regulate soundly and according to the international benchmark.[142]
“BIS relies on market conditions to discipline banks and protect consumers. In the end, national bank regulators have little choice but to implement the recommendations in part or in whole as “global standard” rules. Implementation of the BIS’s recommendation should not be seen as a legal burden, but rather as a necessary requirement to reduce risks and failures in the business of banking. National financial authorities should be especially attentive in developing countries, which need to increase their cooperation in implementing the standards provided by the BIS.”[143]
In the securities regulation field, a number of mechanisms encourage bilateral or multilateral harmonisation and cooperation. In fundraising, each country has an incentive to facilitate its issuers raising funds offshore, and may be willing to allow foreign issuers to raise funds locally if adequate investor protection can be satisfied (as it allows local investors greater opportunities).[144] This tends to encourage mutual recognition approaches, where similarly regulated countries permit foreign issuers to raise funds locally on a reciprocal basis.[145]
Mutual recognition allows two countries to assess each other’s regimes, and allow each other’s firms to enter the local market and raise capital. These arrangements generally pass the national interest test, as provided the regulatory regimes are substantially equivalent, each country’s investors get access to greater investment opportunities and their firms get access to broader capital markets.[146]
This can be adopted on a regional scale, as has been demonstrated in the EU. There the securities and banking regimes rely on a combination of minimum standards and mutual recognition. Minimum regulatory standards are imposed by directive which each member state is obliged to adopt. Each member state is obliged to:
“recognise disclosure documents which fulfil the minimum standards and which are approved by the regulatory authority of another member state. Accordingly, the EU Plan embraces, to a certain extent, both the concepts of commonality and reciprocity, crucial ingredients of an appropriate harmonisation project.”[147]
Similar approaches have been taken in the US/Canada and Australia/New Zealand contexts.[148]
This has led to some collective standards on fundraising disclosure, particularly in the accounting field. A key aspect of fundraising disclosure is robust financial accounting, and this is obviously affected by the quality of the accounting rules. In an effort to reduce costs for internationally active businesses and facilitate international fundraising, national accounting standard setters have collaborated on International Accounting Standards (IAS). It may also lead towards a passporting approach, where issuers are able to raise funds in the jurisdictions of all participating countries provided it has complied with the disclosure laws of one of them.[149] This is a hybrid of mutual recognition and minimum standards, and has been implemented in the EU in a number of financial services fields. The IOSCO ‘International Disclosure Standards’ could conceivably be used this way in the future.[150]
Prudential regulation is the aspect of global financial regulation with the greatest early prospects. Each country benefits from sound prudential regulation, and from regulation according to a prominent international standard. Further, prudential regulation is an activity subject to clear economies of scale. For these reasons, there is a realistic possibility that an international prudential regulator could be established on an incremental basis.
Prudential regulation can be established on a user-pays model.[151] The industry can be levied for the ‘service’ of prudential regulation, giving the international prudential regulator a viable financial base.
Prudential regulation is increasingly seen as independent of the day-to-day business of government and carried on by an independent regulator. Admittedly there would be some loss of sovereignty involved in delegating to an international regulator, but this should be partly ‘repaid’ by a greater ability to signal robust regulation (ie by an even more independent, better resourced regulator).[152] Prudential regulation is also the area where the internationally agreed standards, both on substantive and coordination issues, have already been established in detail. Together, this means that the loss of sovereignty involved for the national government is reduced.
As discussed, a federal model is probably a realistic solution to minimise sovereignty issues – at least as a preliminary measure.
“A two-tier system of supervisory responsibilities has taken over the supervision of international financial institutions. National authorities rule at the local level; supranational institutions are finding their places globally. A division of competence between national and supranational supervisory entities will be honed and pruned until the supranational authority will be a formal, law-making body.”[153]
Regional prudential regulation is a possible first step. For example, The Economist reports that “American and British officials are keen to install a transatlantic watchdog”.[154]
In this author’s view, an international prudential regulator is achievable. The current closest model is the BIS.[155] It is conceivable that, combined with elements of IMF and secondees from national regulators, the BIS could evolve into an international financial regulator. As discussed above, this need not happen in one step or even rapidly; nations could gradually adopt the international prudential regulator as their regulator, either for all of their banks, or just their internationally active ones. “As [the BIS] continues to mature and as its edicts are increasingly accepted throughout the world, it will continue to approach its rightful place as the world’s bank regulator.”[156]
Market and conduct regulation has reasonable prospects of viable international regulation. In the early stages, regional regulation is probably most likely, rather than moving straight to a global regulator.
As with prudential regulation, numerous academic studies demonstrate that each country benefits from sound market regulation, and from regulation according to a prominent international standard. Like prudential regulation, market regulation is subject to clear economies of scale and can be established on a user-pays model.[157]
Market and conduct regulation is also increasingly carried on by an independent regulator, rather than a ministerial government department.[158] Admittedly there would be some loss of sovereignty involved in delegating to an international regulator, but this should be partly ‘repaid’ by a greater ability to signal robust regulation.[159]
Unfortunately, international standards are less developed in the area of market and conduct regulation. While the IOSCO principles are broad in scope, they are not detailed enough to readily allow for implementation by an international regulator. Much detail is still left to national regulators at present.
International financial market regulation is most likely in one of two ways. One is fundraising, where disclosure requirements are somewhat more detailed at the IOSCO level, together with the IAS. The other is regional regulatory models, where small groups of countries with similar political and regulatory history band together to set up regional securities rules and a regional regulator.[160]
As with an international prudential regulator, a federal model is probably a realistic solution to minimise sovereignty issues in market regulation. This has been a successful model in the EU, as discussed earlier.[161]
Unlike the situation with prudential regulation, there is not such a well-developed starting body that might naturally evolve into an international market regulator. The most likely candidate at this stage is IOSCO. Siew suggests a ‘Global Coordinator’ be adopted in the financial market regulation field “as the equivalent of the World Trade Organisation. The IOSCO, with its wide membership of national regulators, is well poised to transform itself to adopt such a role.”[162]
However, IOSCO would need to change drastically before it could evolve into an international regulator. In the short to medium term, it is more likely that IOSCO will continue to coordinate international standards and cooperation, but that moves toward supranational market regulation will develop at a regional level. For example, CESR, the US/Canada and Australia/NZ systems could more realistically evolve into regional supranational regulators in the foreseeable future.[163]
Much has been written in recent years about the international financial system, its weaknesses and how it should be reformed. Like the UN and other international bodies, it tends to take a serious crisis before the establishment or reform of such vital institutions is agreed to (sometimes known as a ‘San Francisco moment’, after the unique post-WWII climate in which the UN was established). The Bretton Woods institutions were established in such a unique climate.[164] We hope that the current financial market crisis results in some practical improvements to the system.
This paper discussed the international financial system, current international regulatory measures, how a global regulator might be established and some of the issues involved. It set out some suggested gradual steps towards global financial regulation and analysed the process by which they might be achieved in the light of the political issues involved. Some suggest that this is natural evolution and will
“proceed to hard law and a single law of international bank regulation. It need not be given mandatory direction; it need not be subjected to theory. There will continue to be new needs. They will be given new solutions. International bank regulation will in this manner continue to approach, finally to reach, the goal of a single mandatory supervisory structure.”[165]
However, even a regional supranational regulator may be beyond the political appetite at present. The current financial market crisis is probably not sufficiently severe, and the supporting inter-governmental frameworks not sufficiently developed to support it. In the words of The Economist,
“Eventually, more dramatic change is bound to come. … in a couple of decades the global financial architecture will look substantially different from today, not because a more enlightened set of politicians has designed a Bretton Woods II, but because the system has naturally evolved along a different route: regional integration. By 2020, … there will be global regulatory standards, supervision—and, more importantly, crisis-management—will increasingly take place at the regional level. The IMF will still be there, but mainly for countries that have remained outside regional blocks. An implausible idea? Not compared with some of the other blueprints around.”[166]
[∗] Rhys Bollen LLM (Cambridge), Grad Dip Comm Law (University of Sydney), BBus LLB (Hons) (UTS). This article is based on a paper originally prepared for Professor Ross Buckley’s UNSW LLM course “International Financial System – policy and regulation”. The views in this article, including any errors or omissions, are the author’s only. This article is based on the law as at 1 June 2008.
[1] The Economist, “Barbarians at the vault”, 17 May 2008, p15 (Asia edition).
[2] John Fontecchio, “The General Agreement on Trade in Services: Is it the answer to creating a harmonised global securities system?” (1994) North Carolina Journal of International Law and Commercial Regulation 115, at 119-120.
[3] The Economist, “Time for a redesign?”, 28 January 1999
[http://www.economist.com/surveys/displaystory.cfm?story_id=E1_TRPRRS, viewed 30 April 2008] Ross Buckley, “The institutional weaknesses in the international financial system” (http://ssrn.com/abstract=975015, accessed 15 April 2008), at 3.
[4] The Economist, “Time for a redesign?”
[5] The Economist, “A wealth of blueprints”, 28 January 1999
[http://www.economist.com/surveys/displaystory.cfm?story_id=E1_TRPJDV, viewed 30 April 2008].
[6] Dilip Das “Globalization in the World of Finance: An Analytical History” Global Economy Journal Volume 6, Issue 1 2006 Article 2 (http://www.bepress.com/gej/vol6/iss1/2), at 1.
[7] Ross Buckley, “How the International Financial System, to its Detriment, Differs from National Systems, and What We Can Do About It” (2004) 34 Hong Kong Law Journal 321, at 322.
[8] Mervyn King, “Through the looking glass: reform of the international institutions” (2007) Australian Business Review 123, at 123; David Zaring “International law by other means: the twilight existence of international financial regulatory organisations” (1998) Texas International Law Journal 281, at 282-3; Guan Siew, “Regulatory Challenges in the Development of a Global Securities Market – Harmonisation of Mandatory Disclosure Rules” [2004] Singapore Journal of Legal Studies 173, at 173; Uri Gieger, “The case for the harmonisation of securities disclosure rules in the global market” [1997] Columbia Business Law Review 241, at 243; Ken Henry, “Mutual Recognition of Financial Services Regulation: Opportunities and Challenges for Australia-Address to the ASIC Summer School” 18-20 February 2008, Melbourne [http://www.treasury.gov.au/contentitem.asp?NavId=008&Content
ID=1346, viewed 30 April 2008]; Fontecchio, at 115.
[9] Buckley, “How the International Financial System, to its Detriment, Differs from National Systems, and What We Can Do About It”, at 322.
[10] Nicolas Veron, “Strengthening Europe’s Capital Markets”
[http://www.princeton.edu/~smeunier/VeronCapitalMarkets.pdf , viewed 30 April 2008], at 4.
[11] Das, at 12; Garri Hendell, “International harmonisation efforts in securities and banking regulation” (1994) 88 American Society of International Law Proceedings 398, at 398-399.
[12] Carl Felsenfeld and Genci Bilali, “The role of the Bank for International Settlements in Shaping the World Financial System” Fordham Law School Occasional Papers, 2004 no 1, at 97; Dilip Das, at 8-9.
[13] Gieger, at 247; IMF Surveillance Factsheet - October 2007
[http://www.imf.org/external/np/exr/facts/surv.htm, viewed 4 May 2008].
[14] Veron, at 4; Gieger, at 258; Luzi Hail and Christian Leuz, “International Differences in the Cost of Equity Capital: Do Legal Institutions and Securities Regulation Matter?” Wharton Financial Institutions Centre, [http://papers.ssrn.com/sol3/papers.cfm?abstract_id=437603, viewed 30 April 2008], at 25; Henry speech.
[15] Hail and Leuz, at 25.
[16] The Economist, “A wealth of blueprints”; Ken Henry speech; Ross Buckley, “The institutional weaknesses in the international financial system”, at 4.
[17] IMF, “Global Financial Stability Report – Market Developments and Issues”, September 2003 [http://www.imf.org/external/pubs/ft/GFSR/2003/02/index.htm, viewed 4 May 2008].
[18] Buckley, “The institutional weaknesses in the international financial system”, at 4.
[19] Henry speech.
[20] The Economist, “Bankers' trust”, 24 April 2008
[http://www.economist.com/finance/displaystory.cfm?story_id=11088888, viewed 4 May 2008]; The Economist, “Too soon to relax”, 1 May 2008
[http://www.economist.com/opinion/displaystory.cfm?story_id=11293916, viewed 30 April 2008].
[21] The Economist, “Time for a redesign?”, 28 January 1999
[http://www.economist.com/surveys/displaystory.cfm?story_id=E1_TRPRRS, viewed 30 April 2008].
[22] The Economist, “Time for a redesign?”; Felsenfeld and Bilali, at 134.
[23] The Economist, “Will it fly?” Apr 3rd 2008.
(http://www.economist.com/finance/displaystory.cfm?story_id=10970799); Nicolas Veron, at 1.
[24] Buckley, “The institutional weaknesses in the international financial system”, at 3; The Economist, “A wealth of blueprints”; Buckley, “How the International Financial System, to its Detriment, Differs from National Systems, and What We Can Do About It”, at 321.
[25] Felsenfeld and Bilali, at 109.
[26] Buckley, “How the International Financial System, to its Detriment, Differs from National Systems, and What We Can Do About It”, at 323, 332.
[27] Buckley, “The institutional weaknesses in the international financial system”, at 3; Felsenfeld and Bilali, at 109.
[28] See ‘Current state of international financial regulation’ below; Hendell, at 410.
[29] eg pension schemes and insurers.
[30] Financial System Inquiry, 1997 (http://fsi.treasury.gov.au/, viewed 30 April 2008).
[31] Felsenfeld and Bilali, at 109; see below under ‘Current state of international financial regulation’.
[32] Felsenfeld and Bilali, at 9.
[33] King, at 124-125.
[34] The Economist, “Time for a redesign?”
[35] Felsenfeld and Bilali, at 6.
[36] Felsenfeld and Bilali, at 6.
[37] Felsenfeld and Bilali, at 9.
[38] BIS “About the Basel Committee” [http://www.bis.org/bcbs/index.htm, viewed 3 May 2008]
[39] The Economist, “Stronger foundations”, 18 January 2001
[http://www.economist.com/finance/displaystory.cfm?story_id=E1_QSRRGT, viewed 30 April 2008]; The Economist, “Sweeter Basle”, 18 January 2001,
[http://www.economist.com/opinion/displaystory.cfm?story_id=E1_QSRVVG, viewed 30 April 2008]; Felsenfeld and Bilali, at 8-9; Rhys Bollen, “The legal nature of international payments” (2007) 18 JBFLP 85, at 97.
[40] Das, at 14; Governor Laurence Meyer, “Issues and Trends in Bank Regulatory Policy and Financial Modernization Legislation”, at the Bank Administration Institute, Finance and Accounting Management Conference, Washington, DC, June 9, 1998; Griffith-Jones and Spratt, “Will the proposed new Basel Capital Accord have a net negative effect on developing countries?” Institute of Development Studies, University of Sussex (http://www.ids.ac.uk/ids/global/finance/intfin.html); Cem Karacadag and Michael Taylor, “Toward a New Global Banking Standard: The Basel Committee's Proposals” IMF Finance and Development, December 2000, Volume 37, Number 4; US FRB, “Capital Standards for Banks: The Evolving Basel Accord” Federal Reserve Bulletin September 2003, 395; Susanne Lütz, “Beyond the Basle Accord: Banking Regulation in a System of Multilevel Governance”, International Studies Association 41st Annual Convention, Los Angeles, March 14-18, 2000; Phong Ngo, “International Prudential Regulation, Regulatory Risk and the Cost of Bank Capital”, The Australian National University Working Papers in Economics ad Econometrics, 23 May 2006, at 1-2; Felsenfeld and Bilali, at 49-50.
[41] L. Jacobo Rodríguez, “International Banking Regulation - Where’s the Market Discipline in Basel II?” Policy Analysis no 455 (15 October 2002),, at 1; Felsenfeld and Bilali, at 10.
[42] http://www.bis.org/publ/bcbsca.htm.
[43] Rodríguez, at 1; John Pattison, “International Financial Cooperation and the Number of Adherents: The Basel Committee and Capital Regulation (2006) Open Economies Review Volume 17, Numbers 4-5 / December, 2006; Felsenfeld and Bilali, at 42; Penelope Hawkins, “Financial liberalisation and global governance: Role of international entities - South Africa and Basel II” FEASibility (Pty) Ltd, March 2007
[http://www.ibase.org.br/userimages/FLGG%20-%20Penelope%20Hawkins.pdf, viewed 20 April 2008], at 15.
[44] The Economist, “The regulator who isn't there”, 16 May 2002 [http://www.economist.com/surveys/displaystory.cfm?story_id=E1_TTTJJTT, viewed 30 April 2008].
[45] Felsenfeld and Bilali, at 9.
[46] Felsenfeld and Bilali, at 50; Zaring, at 281; Richard Parlour, “The regulation of global trading and investment” (1992) 7 Journal of International Banking Law 9, at 9.
[47] Felsenfeld and Bilali, at 50; Zaring, at 291.
[48] FSF “Financial Stability Forum” [http://www.fsforum.org/home/home.html, viewed 3 May 2008]; The Economist, “The regulator who isn't there”; Carl Felsenfeld and Genci Bilali, at 40.
[49] FSF “Who we are” [http://www.fsforum.org/about/who_we_are.html, viewed 3 May 2008].
[50] FSF “Financial Stability Forum”.
[51] IOSCO, “IOSCO Historical Background”
[http://www.iosco.org/about/index.cfm?section=history, viewed 3 May 2008].
[52] The Economist, “Regulators’ arbitrage”, 3 May 2001
[http://www.economist.com/surveys/displaystory.cfm?story_id=E1_VJQPVN, viewed 30 April 2008].
[53] The Economist, “Regulators’ arbitrage”; Zaring, at 296; Fontecchio, at 122; Parlour, at 14.
[54] Siew, at 186; The Economist, “The regulator who isn't there”\
[55] IMF Surveillance Factsheet - October 2007
[http://www.imf.org/external/np/exr/facts/surv.htm, viewed 4 May 2008].
[56] IMF Surveillance Factsheet - October 2007.
[57] IMF, “Financial Sector Assessment Program (FSAP)” 22 April 2008
[http://www.imf.org/external/np/fsap/fsap.asp, viewed 4 May 2008]; Das, at 13.
[58] The Economist, “Questions of Oil”, The World in 2008
[http://www.economist.com/theworldin/displaystory.cfm?story_id=E1_VTVGSVV, viewed 30 April 2008].
[59] Gieger, at 281-282.
[60] Hendell, at 398-399.
[61] The Economist, “In search of honesty”, 15 August 2002,
[http://www.economist.com/business/displaystory.cfm?story_id=E1_TNRQNGT, viewed 30 April 2008]; Felsenfeld and Bilali, at 113-114.
[62] The Economist, “In search of honesty”; Hendell, at 402.
[63] Zaring, at 287.
[64] The Economist, “A stitch in time”.
[65] Zaring, at 282-283.
[66] Felsenfeld and Bilali, at 111; Uri Gieger, at 299, 307.
[67] Felsenfeld and Bilali, at 107; The Economist, “The next crisis” 17 May 2008, p25 (Asia edition).
[68] The Economist, “The regulator who isn't there”.
[69] The Economist, “The next crisis”.
[70] The Economist, “A stitch in time”.
[71] The Economist, “A stitch in time”.
[72] Hendell, at 412.
[73] The Economist, “A stitch in time”.
[74] This also ensures internationally active financial services firms actively lobby their home regulators and governments to implement robust and internationally standardised regulatory regimes.
[75] Felsenfeld and Bilali, at 95; David Zaring, at 290.
[76] The Committee of European Banking Supervisors (CEBS) and the Committee of European Securities Regulators (CESR).
[77] US FRB, “Capital Standards for Banks: The Evolving Basel Accord” Federal Reserve Bulletin September 2003, 395, [http://www.federalreserve.gov/pubs/bulletin/2003/03bulletin.htm, viewed 20 April 2008], at 402.
[78] Zaring, at 290.
[79] Siew, at 188-189.
[80] Gieger, at 299; The Economist, “A wealth of blueprints”.
[81] Felsenfeld and Bilali, at 107.
[82] Felsenfeld and Bilali, at 110.
[83] Zaring, at 285.
[84] CESR, “CESR in short” [http://www.cesr-eu.org/index.php?page=cesrinshort&mac=0&id=, viewed 4 May 2008].
[85] Veron, at 4.
[86] Veron, at 4.
[87] Felsenfeld and Bilali,, at 89.
[88] ECB, “ECB, ESCB and the Eurosystem”
[http://www.ecb.int/ecb/orga/escb/html/index.en.html, viewed 4 May 2008].
[89] ECB, “The Eurosystem – organisation”.
[90] ECB, “The Eurosystem – organisation”; Felsenfeld and Bilali, at 133.
[91] Felsenfeld and Bilali, at 110.
[92] John Fontecchio, at 116.
[93] Felsenfeld and Bilali, at 117; Gieger, at 302.
[94] Gieger, at 307; Veron, at 6; Siew, at 183.
[95] Hendell, at 398, 401.
[96] Siew, at 179-180; Zaring, at 283; Gieger, at 290; Ngo, at 4, 27; Veron, at 5.
[97] Fontecchio, at 117.
[98] Felsenfeld and Bilali, at 123; Das, at 13.
[99] Felsenfeld and Bilali, at 123.
[100] Buckley “The institutional weaknesses in the international financial system”, at 3.
[101] Clive Briault, “Revisiting the Rationale for a Single National Financial Services Regulator”, Financial Services Authority Financial Services Authority Occasional Paper No. 16 (2002) [http://papers.ssrn.com/sol3/papers.cfm?abstract_id=427583, viewed 20 May 2008].
[102] Felsenfeld and Bilali, at 110, 121; Buckley, “The institutional weaknesses in the international financial system”, at 16-17; Siew, at 173-174; Lütz speech; Buckley, “How the International Financial System, to its Detriment, Differs from National Systems, and What We Can Do About It”, at 331.
[103] The Economist, “The regulator who isn't there”.
[104] Felsenfeld and Bilali, at 1.
[105] Felsenfeld and Bilali, at 118; Gieger, at 299; Zaring, at 327; The Economist, “A wealth of blueprints”.
[106] The Economist, “The regulator who isn't there”.
[107] Siew, at 174; Rodríguez, at 17-18; Gieger, at 268-269; American Enterprise Institute “The Advantage of Competitive Federalism for Securities Regulation”, Press release, December 17, 2002.
[108] The Economist, “Coming together” 16 March 2008
[www.economist.com/opinion/PrinterFriendly.cfm?storyid+5630519, viewed 30 April 2008]; The Economist, “The regulator who isn't there”.
[109] Siew, at 179-180.
[110] Felsenfeld and Bilali, at 118; Gieger, at 299.
[111] Felsenfeld and Bilali, at 120; The Economist, “A wealth of blueprints”.
[112] Felsenfeld and Bilali, at 117.
[113] The Economist, “Time for a redesign?”
[114] The Economist, “Time for a redesign?”
[115] The Economist, “Time for a redesign?”
[116] Daniel Drezner “On the balance between international law democratic sovereignty” (2001) 2 Chicago Journal of International Law 321 at 323.
[117] Roger Geobel, “European Economic and Monetary Union: will the EMU ever fly?” (1998) 4 Columbia Journal of European Law 249, at 254.
[118] Daniel Drezner, at 325.
[119] Robert Mundell, “Monetary Union and the Problem of Sovereignty” (2002) 579 Annals of the American Academy of Political and Social Science 123, at 141.
[120] Buckley “The institutional weaknesses in the international financial system”, at 16-17; Zaring, at 327; Gieger, at 299; Felsenfeld and Bilali, at 113-114; Hendell, at 411; The Economist, “Repairs begin at home” 31 January 2008,
[http://www.economist.com/research/articlesBySubject/displaystory.cfm?subjectid=348936&story_id=10608407, viewed 20 May 2008].
[121] Fontecchio, at 131.
[122] Fontecchio, at 131.
[123] Hendell, at 408.
[124] Gieger, at 271; American Enterprise Institute; Hail and Leuz, at 3; Christian Leuz “The benefits of transparency: Disclosure regulation and cost of capital” From the University of Chicago Graduate School of Business [http://www.chicagogsb.edu/capideas/Jul06/1.aspx, viewed 20 April 2008]; Zhihong Chen, Dan Dhaliwal, Hong Xie, “Regulation Fair Disclosure and the Cost of Equity Capital” November 2006
[http://papers.ssrn.com/sol3/papers.cfm?abstract_id=930724, viewed 20 April 2008], at 1-2.
[125] Hendell, at 411.
[126] Felsenfeld and Bilali, at 129; Zaring, at 303.
[127] Fontecchio, at 116.
[128] Clive Brialt, (1999), “The Rationale for a Single National financial Services Regulator” Financial Services Authority, Occasional Paper Series, No. 2, May, at 24.
[129] ie, along the lines of the ESCB or US Federal Reserve System.
[130] The Economist, “Repairs begin at home”.
[131] Buckley, “The institutional weaknesses in the international financial system”, at 16-17; Buckley, “How the International Financial System, to its Detriment, Differs from National Systems, and What We Can Do About It”, at 332.
[132] Eg the UNIDROIT Convention on International Interests in Mobile Equipment (Cape Town, 2001) [http://www.unidroit.org/english/conventions/mobile-equipment/main.htm, viewed 20 April 2008].
[133] Felsenfeld and Bilali, at 64.
[134] Felsenfeld and Bilali, at 68.
[135] www.fatf.org.
[136] Felsenfeld and Bilali, at 131-132; Lütz speech.
[137] Felsenfeld and Bilali, at 101.
[138] Felsenfeld and Bilali, at 92.
[139] Felsenfeld and Bilali, at 128.
[140] Pattison; Felsenfeld and Bilali, at 68.
[141] Siew, at 271; Felsenfeld and Bilali, at 68.
[142] Felsenfeld and Bilali, at 64.
[143] Felsenfeld and Bilali, at 93.
[144] Hendell, at 398-399.
[145] Siew, at 183; Gieger, at 298-299; Henry speech; Zaring, at 175; Hendell, at 412.
[146] Henry speech; Hendell, at 412.
[147] Siew, at 185.
[148] Gieger, at 268; Henry speech; Veron, at 7-9; Fontecchio, at 129-130.
[149] Zaring, at 177; Hendell, at 398-399.
[150] Zaring, at 186; American Enterprise Institute press release.
[151] Eg the UK Financial Services Authority (www.fsa.gov.uk) and the Australian Prudential Regulation Authority (www.apra.gov.au).
[152] Hendell, at 408.
[153] Felsenfeld and Bilali, at 133.
[154] The Economist, “The next crisis”.
[155] Felsenfeld and Bilali, at 46.
[156] Felsenfeld and Bilali, at 1.
[157] Siew, at 183; Gieger, at 307; eg the UK Financial Services Authority.
[158] IOSCO, Objectives and Principles of Securities Regulation, Principle 2.
[159] Hendell, at 408.
[160] Hendell, at 412.
[161] Siew, at 185.
[162] Siew, at 188-189; Cf Fontecchio, at 123.
[163] Siew, at 184; Gieger, at 268; Henry speech; Fontecchio, at 129-130.
[164] The Economist, “A wealth of blueprints”.
[165] Felsenfeld and Bilali, at 132.
[166] The Economist, “Time for a redesign?”.
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